The Great Reversal: How America Gave Up on Free Markets, By Thomas Philippon (2019) Cambridge, Mass.: Belknap Press/Harvard University Press. ISBN: 978-0-674-23754-4

Open a business ethics or business and society textbook and you will see that the United States is a free market society. Likewise, in op-eds, both conservative and liberal commentators state that the virtue or vice of the United States is its commitment to free markets. In the business ethics textbooks, nearly every aspect of business malfeasance is covered, except for its overlaying cozy relationship with government regulators. There is a lack of coverage in political discourse that treats government regulators are disinterested protectors of the good public, when in fact, they are often self-interested and self-serving.

Thomas Philippon has written an explosive and powerful book that argues that the conventional wisdom is wrong; the United States has largely abandoned markets and uses monopoly and government intervention in the economy. Much of the economic problems the United States currently faces are not the result of a legacy welfare state, unfair trade, or immigration, but due to the fact that the United States has had a period in which competition has largely dried up. This is the result of government policy and that government policy is the corporate interference with public policy. As Philippon writes, “the consequences of a lack of competition are lower wages, lower investment, lower productivity, lower growth, and more inequality.”

Now, these viewpoints are similar to public-choice economics. However, his argument is controversial. While conservatives may enjoy the direct rebut of government policy, they are skeptical that the United States is so anti-competitive. For example, they point out that the United States is still the leading patent producing and innovation nation on Earth. Leftists may enjoy the fact that Philippon makes arguments regarding the high increase of disparity, he is very clear that government is the cause of much of these problems, not the solution. Philippon argues that there should be a phase of redistribution of corporate profits, but he is also critical of the close relationship between government and large business. Philippon offers an Elizabeth Warren diagnosis, but a Milton Friedman solution. There is enough in the book to offend and support all parties.

Do not let Philippon’s French background or the fact that he has a connection to French Socialist Party fool you: in the way, that it has fooled some American reviewers. He is not a critic of American free markets, but an ardent defender. Although there has been a group of French economists, such as Thomas Piketty, Olivier Blanchard, Esther Duflo, Emmanuel Saez and Gabriel Zucman, who have written, to varying success and insight about the United States economy, there is little overlap in either their diagnoses or solutions. Philippon does not focus on differences between the United States and Europe in fiscal or monetary issues. His sole point is that excessive regulation and lobbying has made the United States less competitive—a very different perspective than others.

Philippon’s arguments are most persuasive. The shift to free markets and its reversal was a bipartisan action—neither Republicans or Democrats, conservatives or liberals, can make a complete claim on solving or creating the problems. The shift away from free markets has been bipartisan as well. He cites various works of scholarship that if the United States followed European examples, internet and cell phone costs would be reduced by billions of dollars. Philippon is also for high levels of returns; he supports the creation of rent, but opposes the practice of rent seeking, which occurs when companies seek to use the government to subvert the economy. His arguments on the American healthcare system mirror those of Michael Porter, who argued that much of American healthcare is more about cost shifting than value creation. I believe he overstates his case on American innovation, but clearly, we do not have the free market system we had during the 1980s and 1990s.

There are several issues with the book. Firstly, I am not sure Philippon goes far enough in his arguments. One of the reasons why we have witnessed so much concentration is that, due to Sarbanes-Oxley, we have made it more difficult for small and mid-capital firms to gain access to the public market by raising the cost of auditing. This has led to a reduction of small businesses that fuel growth and job creation. Likewise, policies that promote the green economy, such as tax benefits and regulations, seem to reward politically connected firms. In fact, the one United States energy company that supported the Kyoto Protocols was Enron, which, despite its presentation, was a political rather than the overly aggressive rent-seeking firm.

Secondly, I believe we have created a vast and complex system, with numerous loopholes that benefit some firms at the expense of others. When the Roosevelt Administration passed the National Recovery Act, which regulated and basically socialized the United States economy, the document was less than 20 pages. Today, congressional acts are hundreds and even thousands of pages. I highly doubt that lawyers were more succinct in writing back in the day.

Thirdly, as bad as the United States healthcare system is when compared with others, it is still a source of innovation, because of the higher profits from the United States market. Basically, Europe and the World are free riding from the United States example. Fourthly, I am not sure Philippon is convincing enough about the lack of growth of the US economy. Economists use Gross Domestic Product to determine how much growth has occurred in an economy. The problem with this measure is that too much aggregation hides or distorts strengths and weaknesses. The vast reduction of price for most technology and the absolute increase in utility indicates that there is much more strength in the economy than would be suggested by a mere reference to slower increases in Gross Domestic Product.

In fact, I would go further than Philippon; we have created two economies: one static and based on rent seeking and the other dynamic and rent creating. The largest problem in our political discourse is that we treat all corporate and economic failure as market driven problems when it is the result of rent seeking. Often, these problems are a failure of both corporations and big government working together. Philippon’s book is an important step in the right direction.